Dylan Leclair Using Fiat Debt For Bitcoin Stacking

Hi, you're listening to Stephan Livera. Podcast, a show about Bitcoin. Today for episode three hundred and twenty-six, I'm talking with Dylan Leclair of Bitcoin Magazine and UTXO management. We're talking about using fiat debt for Bitcoin stacking. Now, the current situation on the fiat standard is that in some paradoxical sense, we have an incentive to go and use debt. Now, Dylan and I chat about this idea of using debt to stack Bitcoin or potentially for a Bitcoin mining operation. Now, we talk about the The advantages and disadvantages of this approach, the costs and the risks, right? It's not a free lunch, but potentially there are ways to do this and essentially use the system against itself, and we talk about the risks as well, such as avoiding liquidation. This show is brought to you by Swann dot com, the easy way to accumulate Bitcoin while also learning about Bitcoin with various free resources like Inventing Bitcoin, twenty-one lessons, and Why Bitcoin. Now with Swann, you can start off with a lump sum purchase. And then set up your BSP, Bitcoin Savings Plan, and on Swan dot com, there's a savings plan calculator. So for example, if you had been putting in a hundred dollars a week for five years, you would have put in twenty-six thousand dollars over that time, and you'd now have three hundred and sixteen thousand dollars worth in Bitcoin. So if you're looking to stack, go and sign up at Swan dot com. If you are a high net worth investor or company, go and check out SwanPrivate dot com. If you're looking for a Bitcoin hardware wallet, my favorite is the Coldcard by CoinKite dot com. CoinKite have been around the industry for a while, and they are focused on hardware in recent years. So the Coldcard looks like a little calculator. You can either direct plug it with your laptop or computer if you're a beginner, or if you're intermediate or advanced, you can use a micro SD card and use that for air-gapped transactions easily with wallets like Specter Desktop, Sparrow, or Electrum. Now, the Coldcard also has all sorts of features I really like. The address explorer, because this allows you to check that you truly do hold the private keys to a given address, and so you can verify on the device that you really have that address. So go to getyours at coinkite dot com and use the code Levere for a discount. Are you looking to get started with Bitcoin mining? Compassmining dot io are making it easy for people to do this. Bitcoin mining has become very popular over the last year or so, but it's not necessarily easy for a retail level individual to get involved with compass. mining, you can source your ASIC machine, and they've also got the Compass marketplace, so you can see and purchase machines that are second-hand machines, so those are cheaper than the straight-up new machines. Now, with Compass mining, you can select your ASIC, have that shipped to a facility, pay hosting fees, and have it turned on. You select the Bitcoin mining pool, and then you're receiving SATs, and you can also do this without KYC as well, so there's some potential benefit for you there also. So if you're interested, go to compassmining.io and- Find out more information there. Dylan, welcome to the show.

Stefan, thanks for having me, man. long time listener of the show. A lot of content in this space, so I can't say I've, I've hit everyone, but I've definitely listened to a lot of the technical episodes, and it's helped me out a lot, so it's, it's quite cool being on here.

Yeah, for sure. And I'm, I'm a fan of your work. I've seen you've, really come up in the last year or two. You've been putting

Obviously, you're known for a few things, right? You talk about on-chain analytics as well as writing in the space, research, but I've also seen you talk about the use of debt as well. So I think that's really interesting and, an interesting theme. but, maybe just first for anyone who hasn't heard of your work, maybe they're new, tell us a little bit about yourself, like how you got into this Bitcoin stuff and what your focus has been.

Yeah, so right now I work with, with Bitcoin Magazine, I'm head, head of market research there. So, Bitcoin Magazine has a, has a like a premium markets product, so we put out, kind of Bitcoin, and just like generally like financial market, research, on a daily basis, it's called The Deep Dive. And so, there's free and paid tiers there, but we, we just kind of, look at what's happening on chain, look at what's happening kind of with derivatives and, A ten year, or actually probably longer than ten year, like this hyper bitcoinization theme. Bitcoin is the best money, the best monetary asset the world's ever seen, and so we're just kind of, documenting that, that journey, with, with data. And so, that's kind of my day to day in terms of how I got into Bitcoin, I was really just kind of, stumbled upon this thing that, that grabbed my attention, in, the later years of high school and my freshman year of college, studying business in college

I was paying in, so I, I dropped out and just, you know, said I'd try to figure out this, this Bitcoin thing and worked a job in the, in the meantime. But, you know, long story short, kind of, kind of stumbled into a, into a role at Bitcoin Magazine and, you know, carried me here ever since. So, so really grateful and, and kind of, yeah, I mean, really grateful to kind of come along this journey and it, it's pretty cool because Bitcoin is just kind of this arena of ideas and

for

Absolutely, and I think that's really testament to the quality of the dialogue in the Bitcoin space, that it's not really about like, "Oh, what university did you go to?" It's not about that at all. It's really just about like, "What is the quality and the value that you're bringing for listeners or readers or consumers of whatever material you're putting out there?" And I, I've def- I definitely see you as a bit of a rising star in, in the movement, as it were, so that's cool to see. And I- I know. So yeah, we were chatting about this idea of using debt in the Bitcoin world, and I know this is something you've spoken about, and, I guess it can seem like a bit of a taboo, right? Because the way most of us were raised is like, "Oh, debt is bad. You should save. You know, you should not have too much debt." Or if people are used to looking at the typical, let's say, if they pick up a personal finance book, they might read Dave Ramsey or someone like that, you know? so can you tell A little bit, how do you see the landscape of it, set the scene for us, what is, what is life like under the fiat standard or at least up until recent years?

Yeah, so I mean, I think just, when you're looking at kind of how the fiat monetary system works, you know, we, we moved away from the gold standard and, and you know, we've, bitcoiners have talked about that, quite a bit, but, you know, with fiat money, every dollar that's in circulation was created, through credit extension. It was, it was lent into existence by commercial banks. So debt is, is kind of a necessity, in this world that we live in, regardless of if, if take on any debt, which depending on the circumstances, and for the last four years, those circumstances have been ripe, taking on debt is, isn't, you know, in your favor, if you use it, if you use it wisely, you know, obviously six figures, you know, two hundred thousand, two hundred thousand student debt may not be the most prudent thing, but, you know, the richest people in the world, never sell their assets and just continue to, to use debt to their advantage to, to get richer,

With, with debt, and just kind of, I guess, investing in general is, is understanding a balance sheet and understanding, the asset and liability side of the balance sheet. You know, a lot of people, I, I first kind of had this aha moment when I read Pierre Rochard's, Speculative Attack piece, which he wrote in twenty fourteen, which is really kind of mind blowing. I encourage everyone to go read it, it's on the Nakamoto Institute, it's a great website, a lot of, lot of gold in there, Just in terms of timeless content, but really, you know, anybody that holds Bitcoin, anybody that has even some Bitcoin on exchange, Bitcoin in cold storage, you know, even I'd go as far as saying just any sort of Bitcoin exposure, right? I mean, I, I would obviously say, hold your own keys, you know, stack sats to cold storage, but even something like a exposure to G-BTC or anything of the like, you know, if you have any sort of Bitcoin exposure and on, on the asset side of your personal balance sheet or company balance sheet or whatever it is, liabilities, you have, you have debt, you have loans outstanding that you haven't paid. Well, by definition, you are, you know, somewhat of a leveraged Bitcoin investor, a leveraged Bitcoin holder, because you, you acquired that Bitcoin, and, and didn't pay-- and the, the other choice was, was paying off that debt, and you chose not to. so whether that's credit card debt, a mortgage, anything, you decided to, to forego paying that to acquire Bitcoin. And so, you know, over Ten years, Bitcoin has been the best performing asset ever. the compound annual growth rate, you conservatively is just, we'll say 100%, it's, it's somewhere in those lines. If you go from the first time Bitcoin had a market price, it's like 200% compounded annually, but, you know, no one really saw those returns. But regardless, you know, a lot of people will say, you know, don't, don't- Take on debt to buy Bitcoin without really understanding that if you have any sort of liability, if you have any sort of, you know, loans outstanding, and you have Bitcoin on your asset side of your balance sheet, well, you are essentially borrowing to buy Bitcoin. And so your hurdle rate is whatever that interest rate is, is you're paying on that debt is. For some people, on a credit card, it's fifteen percent. And I'm not saying go do that, but, if it's a personal loan at eight percent or a mortgage at three percent, you aren't You know, you acquired some Bitcoin, and so a lot of people are doing this without even really realizing it, and it's been, you know, Michael Saylor is doing it at an institutional scale, but, you know, these are the things that you have to kind of consider as we're, as we're going towards this new monetary standard.

Yeah, really interesting. And so that definitely echoes the point that Pierre made in Speculative Attack, as you rightly pointed out, that even if you have some debt, to some extent, if you think about your balance sheet, you are, in some sense, levered or you at least made a choice, and you- Could have paid off that debt, but instead you're purchasing Bitcoin or you're leveraging in some sense to buy Bitcoin. Now, I, I guess it's important and prudent to say, there are degenerate ways to do this, and there are conservative, or at least more conservative ways to do this, right? So obviously people go to, you know, pick the random shitcoin casino of choice, people can lever up, that's also leveraging up on Bitcoin. but there are other ways as well that you can go into debt, and for example, there's a difference between the types of debt. So for example, with some of the loans that you might get out of your fiat bank It's not like they are going to reclaim your Bitcoin, it might be sec- it might be an unsecured loan, or it could be secured by something else, like so, for example, you know, you can have a car loan secured by the car, you can have a home loan secured by the home, and so there are other ways to access credit, it's not necessarily going to the, shitcoin casinos and, you know, doing leverage trading on that, right?

Yeah, of course. I think that's, that's a great distinction to make. you know, w- there's all these derivative exchanges around the world, where you can essentially speculate on the price of Bitcoin going up or down, but if we're talking about, you know, borrowing against your Bitcoin, you know, going two x levered long on a perpetual swap contract, I mean, essentially you're, you're borrowing against your Bitcoin. A lot of, you know, because you're not actually, you know, getting a, a loan from a bank and

I think the most important thing to understand when, when you're talking about, leverage and, and, and, you know, increasing your Bitcoin holdings is you never, ever, ever wanna become a forced seller. that's the worst thing that can happen to you as a, as someone that's looking to accumulate Bitcoin. And so, if we're, if we're talking about Michael Saylor, right? A lot of, you know, Michael Saylor, he got a little bit of heat, in April when he was like, you know, take on, Billions of dollars, but I think the thing to understand is, you know, Michael Saylor, he took out, took out half a billion dollars and he, a junk bond rate at six percent, but that, that, that principal is paid off in six or seven years, and he's just paying a six percent coupon on that debt. So the break even price for when he purchased Bitcoin at, I think it was, thirty seven, thirty seven thousand dollars, the break even price in twenty twenty seven is like 6K, I'm sorry, it was like 60K. and so, so this is something that like, it's, he's not going levered long on BIMX. and so the worst thing with, like, you could possibly ever do with, with Bitcoin is put yourself in a position where you have to sell and you don't want to. and so that's, I think that's just a really important distinction, you know, unsecured debt, there's, there's still ways to acquire, acquire leverage, you know, acquire

Of course, yeah. And I think the other thing people are probably thinking about, and again, it, it turns into, what monetary system are we living under? Because if you talk to, let's say, our grandparents, someone at that age, they're gonna, the, the way they would think about it or, or would have talked about it is, "Oh, no, don't go into debt. It's, you know, you should be prudent, you should save up, you shouldn't be, levering up." And yet, a-as you rightly point out, in the Rewards people who take out this debt early, right? And so even, listeners, if you've, if you've seen the work of Ghetto Hulsmann, he talks about this. He says even new graduates coming out of university, debt, what's their incentive? It's to borrow, and he, the example he uses is to borrow and buy a house, and because he knows that over time, that the value of that loan in real terms is coming down over time, and typically the typical person who starts a new job is getting promotions over the time, over that time period. Incentive is just that people, now, is that people have an incentive to go into debt, to borrow, to buy things that they want, or in this case, to buy Bitcoin. So, I'm curious, do you have any thoughts to add on that, or shall we get into maybe what it looks like in practice for people who are doing this?

Yeah, I guess I just, you know, the one thing I'd preface with, with, you know, this whole conversation is that, we're truly living in unprecedented times. I mean, historically we've seen periods of, of basically negative real yields, right? So interest rates, Fed fund rate, global central banks around the world are pegging interest rates at zero percent because debt burdens are so high that, that, you know, people wouldn't be able to service, you know, basically everybody in the economy wouldn't be able to service their debts and would This low. And so, right, if you have a three percent loan, well, inflation, according to the official government statistic, is, is six percent. I think everybody kind of understands it's a lot higher than that. So, so your, your borrowing cost, your interest rate, your hurdle rate in real terms now, today, and really for the last decade, I think if you're looking at it, in terms of, you know, what inflation actually is, maybe broad money supply M2 and not CPI, infla-- like inflation or, yields are So I think that's, that's a important thing to understand here, is that we've been in the secular downtrend since nineteen eighty one globally with, with interest rates. And now debt burdens are so, so, so high that central banks, governments are trying to erode the real value of these debt burdens, and they're trying to do it by running inflation hot. And so I think, you know, when we're talking about borrowing money to buy, to, you know, buy very volatile asset like Bitcoin, in, in, you know, BTC USD terms, long term, we understand Is going up into the right, but, you know, there is, there is, you know, trading volatility, that's for sure, or really just any other asset. We, you know, we're prefacing it with, with saying we're in a, we're in a time where real yields are as negative as they've been in basically anybody's lifetime.

Absolutely, and so it's just operating in this weird environment where inflation, and it's like this concept of the iceberg, right? Like the amount that you see above the water is this amount, but actually the amount you see below the water is like Really big, it's like way bigger. And so what we should have seen theoretically in a, in a, in a real free market is that we would have this growth deflation, the cost of things is coming down over time. But yet we're actually seeing the cost of things go up over time. So it's like that amount below the water is, is that unseen benefit that we should have had, right? And so it all comes back to that point around, how just how much inflation there really is, because that six point one percent is just the amount above the water. We're not even counting all that, the iceberg below the water part. So it really is just a lot of inflation that we are living through, and so that's why I think- People who are switched on, people who have a fundamental thesis about what, what they view Bitcoin is, you know, it's gonna become the money of the world, that's the thesis essentially. And under that sort of condition, we anticipate the price of Bitcoin to rise over the long term, and that is where this idea of borrowing against, either borrowing against some Bitcoin or taking out a fiat loan to purchase more Bitcoin on the basis that your cost of interest is less than the- cost that or than the amount that Bitcoin is rising every year, aka Kager, compound annual growth rate. what do you think? Fair summary? Yeah. Okay, so Let's talk a little bit about how this might work and what kinds of interest rates are available, and maybe we can sort of spell it out a little bit. Like, let's say you're a retail, you're, you're, you're just a retail pleb versus kind of the rates that are available to people who are maybe higher up or have more capital available.

Yeah, so I mean, there's, there's obviously a spectrum, does someone have assets or not? you know, I think the, the crazy thing is in, in twenty twenty-one, we've kind of threshold, this financialization of Bitcoin, and that sounds like a bad word, it's not, it should be welcomed, where if someone has a significant amount of Bitcoin holdings, similar to if, if someone has, you know, this huge, this family has a huge real estate portfolio, you really never have to sell, and that wasn't true for, for much of Bitcoin's history, but now it is, in the sense that, you know, if you have, if you have, you know, millions and millions or, or whatever that number is for you,

Where you're comfortable and probably an order of magnitude more than where you're comfortable, you can just simply borrow against your, your Bitcoin, you know, one percent of your holdings and live off it very comfortably, and when that interest comes time to be repaid, you borrow against it again. Obviously, that's, that's not the case for everybody, you know, we're going from the, we're going from the retail pleb, right? So, you know, you're stacking Sats, you're trying to acquire as much of this hard money as, as you possibly can

you know, credit score is still obviously really important in this world we live in, in this fiat world. what's your cost of capital? What can you access? if you have, if you've been paying your mortgage for thirty years and you can pull, and you can borrow at two percent or three percent, that's a fantastic deal, and I think, you know, it's definitely something to consider. one of the things that is really important to also consider is, is are you able to, to cover basically these interest payments? Is

Basically to cover this debt without, without having, again, to become a forced seller of the thing you're trying to acquire, which is Bitcoin, because there is volatility risk, right? so that's, that's something where, you know, if, if I'm borrowing even at, at rates that sound really high, like ten percent, if, if Bitcoin drops down fifty percent, am I gonna be okay for the next year or two or three, being, basically like on paper underwater, right? that's something, that's something to definitely consider. Like personal loans, you know, not recommending this, but, but even a, a credit card at, at fifteen percent, if you're, if you're just, you know, spending your day to day versus, and, you know, in stacking a little bit more to your cold storage, that's something that, you know, has worked, has worked for people if, if they've done it throughout, throughout time, you know, then, you know, again, we have the, we have the collateralized Bitcoin, which I, I will go out and say, I, I've looked into a lot of these options, and I think Bitcoin as collateral will, will become basically, the cheapest borrower rate you could possibly find anywhere in the financial system, right? Because, you know, you have a mortgage, which is basically like the-- or your home equity line of credit, you know, your, your bank extends you some, some credit, and it's secured by the house, that's basically the lowest rate you can get, you know, and maybe some, some private, Goldman Sachs Plus fifty basis points or seventy five basis points. But for the most part, you know, the, the, the home collateral is the most accessible for the average person, and, and, you know, most people have, if they have a mortgage, maybe have some equity in there. But Bitcoin as collateral compared to a mo-- compared to a house is, is orders of magnitude better. And, and for, for lenders, I think they're just starting to figure this out, right? Bitcoin is fungible, liquid, twenty four seven, three sixty five, in every jurisdiction on the

Loss isn't gonna draw down eighty percent, Bitcoin might, and it might do it, might do it in, you know, a week. I'm not, I, I'm not saying I, I predict that, but it's happened before. But with Bitcoin, you can over collateralize. And so, so really for lenders, I think you're just starting to see lenders wake up and realize, "Oh my God, this is a no-risk, this is a no-loss business when I'm lending against over collateralized Bitcoin." And so I think because of this reality, I think Bitcoin,

Anywhere in the world, then you're not gonna need a credit score to get that. but it's important to, to kind of preface it with saying, you know, you probably shouldn't do this with your whole stack, because worst case scenario is you always wanna be able to, to lower that loan to value ratio, you always wanna be able to over collateralize if the exchange rate BTC/USD goes down, because all of this, the, the ability to kind of borrow against your Bitcoin forever, where, where there's a big assumption there, and the assumption is that Goes up, which we, we kind of know is a mathematical certainty or inevitability, and that may sound irresponsible, but just kind of understanding the fiat system, understanding the monetization, of Bitcoin, that's the long term game. But the short term is a lot of uncertainty. so like whenever we're talking about this, there is risk, but we're talk-- we, you know, you wanna be able to mitigate those risks, and, and doing, and doing any of these strategies with a large part or all of your stack puts you in

Right, and I think psychologically the risk as well is just too great that it's, it's one thing to have a high percentage of your net worth in Bitcoin, but then it's another to actually lever up even on top of that And put places off at a significant risk versus if you were, let's say, conservatively using debt to stack. And so I think there's a few points I wanted to make as well. one point is that it doesn't necessarily mean everyone has to go out and get loans to buy more Bitcoin. It could just mean that you understand the fiat system and use it in some sense in your favor. So as an example, you might already have a home loan, and you might already have a very low interest rate on that. And so whereas some people have this mindset of, "Oh, I need Possible. Instead, if you strategically pay the minimum on your home loan for your house and then use the rest to stack Sats, well, that's an example that even-- that's like relatively conservative, right? Like you're not actually going into debt to buy Bitcoin, it's just that you are strategically paying the least on your home loan because you're realizing, hey, the value of this loan is going down over time in real terms, so I'm best off paying the minimum there so that I can stack the max number of Sats. That's one example, right?

That's a fantastic point. And that was what I was trying to communicate with, you know, it's, it's at the beginning with, you know, the asset and, and liability side of your balance sheet, you know, it, everything's a trade-off. And so, you know, obviously like, if, if you have liabilities and you have these, these payments to pay them, but that principle that you, you know, you, you may pay off because Dave Ramsey said so, because it's the, it's the conservative thing to do and the right thing to do, well, are

Bitcoin into your cold storage, that's gonna go up by whatever it does over the next decade, you know, probably an order of magnitude more too, than, than your house. And so I, I think that's a, that's a great point to make, and it may not be the most obvious, for, for many.

Right, because I think for people who haven't had accounting and finance training, they're not going to necessarily be thinking in those terms. They might have just thought in the simple, "Oh, just pay it down as quickly as possible." Or sometimes you might, and in fairness, this is a psychological thing, you might psychologically feel bad about having debt, and so the idea is, "Oh, I want to get rid of debt as quickly as possible," but at the same time, we are potentially leaving some Sats on the table there if we do that, because it means it's, it's S That's, important to think about. Back to the show in a moment. Have you thought about improving your Bitcoin security to multi-signature and removing single points of failure? Unchained Capital can help you with this. You can create a vault and have two keys in separate locations and one key held by Unchained, who can sign for you if you need them to countersign. Now, if you're not sure how to do this, they've got a concierge onboarding program which has become popular. So if you're interested, go and sign up, they will ship you some- Hardware wallets, they'll do a call with you, get you set up, even if you've never held your Bitcoin private keys before, and they'll deposit some Bitcoin in your vault to get you started. So if you're interested, go to Unchained dot com, select the Concierge onboarding program, and use the code Livera for a discount. Now, in the Bitcoin mining industry, Brains are a Bitcoin company through and through. They are working on some of the most unique and cutting edge projects. They have Brains OS Plus, which is firmware to use with your ASIC. They have Sl Bitcoin mining pool, and they are the creators of Stratum v2 and next-gen pooled mining protocol, and they're also driving adoption of this to upgrade the Bitcoin network. So if you're interested, they've got SlushPool, the oldest Bitcoin mining pool, they've mined one point two five million Bitcoin, and they're always working on improvements. They've got ultra-flexible payouts, they've got mining reward splitting for automatically distributing rewards to multiple wallets. They also offer the ability to have zero percent pool fees if you're running Brians OS. Plus, and you point your hash rate to Slashpool, so go and check them out, the website is brains with two eyes brains dot com. Lend at HodlHodl is a peer-to-peer Bitcoin backed lending platform where you can lend or borrow stablecoins globally and anonymously using Bitcoin as collateral. Now, there's a benefit here that you don't necessarily have to KYC for this service, and with Lend at HodlHodl, you no longer have to sell to get some short-term liquidity, you can actually borrow some stablecoins against your Bitcoin and still hold One out of the three keys for that collateral in escrow throughout the deal. On the other hand, if you hold stablecoins, you can earn some interest. You can lend them out, and you define the terms and the APR for those deals. So if you're interested in this, go to lend dot h o d l h o d l dot com. That's lend dot h o d l h o d l dot com. Back to the show. So let's talk a little bit about this idea of, so this idea, and I've, this has become a popular thing recently with some articles talking and popularizing this idea of buy, borrow, die. Right? It's like this idea that rich people, and as you mentioned earlier, I'm sure you're familiar with this idea, is this idea that rich people don't necessarily sell their assets, they just borrow against them, whether that is stock portfolio, whether that is their property portfolio, whether they're a tech billionaire And they have stocks in, stock in their own company, and they just put some stocks up against to borrow that to use for day-to-day fiat spending. And so, I guess there are different ways to think about this, right? So as an example, you could think of it like, okay, I've got some coin. So, I guess where we're going with this is there's different purposes of using the debt. So, I guess high level, let me kind of spell out three examples, and maybe you can just add whatever you're thinking on it as well. So, one is just stacking For example, set up a Bitcoin mining operation. And so instead of paying satoshis to buy Bitcoin mining equipment, you could use a loan and use borrowed fiat to fund that Bitcoin mining operation, which might be more optimal. And then three is you might be living off your stack, right? This is buy, borrow, die, that you are trying to parallel what rich people are doing, that let's say maybe you're at an advanced stage of your own life, sixties, seventies, eighties, and you're thinking, okay, I've accumulated and now I, I want to be able to A few examples. Do you have anything you wanted to add to that or, a-around those purposes of using debt?

Yeah, I think, specifically we're seeing a lot of, you know, mining is, is extremely lucrative right now, you know, since, since last summer The Bitcoin prices has gone up five or six X, and then hash rate has, has increased, but it hasn't followed. So you're seeing like hash price, which is miner revenue divided by hash rate, that's essentially how profitable, you know, a marginal unit of hashes, for, for miners, per dollar, that's, that's gone up three or four X in the last, what is it, fifteen, eighteen months. And so mining, basically, you know, you can plug in any machine over the last three or four years, and, Deep in the money. mining is extremely lucrative right now, and so you're seeing a lot of people say, "Hey, I wanna get into the mining business without maybe the expertise or you know, you have, companies, you know, hosting companies like, say, CompuS and, and a lot of these other companies, you know, not saying these are good or bad investments, just, just listing them off. and a lot of people, you know, because Bitcoin mining, say, "Hey, maybe I should sell some Bitcoin."

What's your, you know, you're gonna break even on your, on your dollar amount, most likely, probably within twelve months with, with what hash price is looking like and just how, how large these margins are for Bitcoin mining. With the thing to consider though, and, and what you really have to evaluate if you're looking at mining in particular, is that, essentially, you're basically guaranteed with, with Bitcoin mining and like kind of the game theory and, and what hash rate's gonna do, hash rate's gonna rise forever and your, and your Satoshi revenue is it's basically gonna be guaranteed to fall for, forever. with the difficulty continuing to ratchet up with the halving in twenty twenty-four, so it's not very optimal, depending on where you are in the cycle, you know, sometimes it is, it's a great time to sell some Bitcoin for miners, but a lot of people get burned by doing it. So it's pretty optimal if you can say, "Hey, I'm just gonna borrow against three, five percent of my stack and I'm gonna buy some Asics." And that rate is what, five, six percent, maybe three percent, maybe eight percent. but, you know, that's, that's a different story. And so purchasing, purchasing ASICs, and plugging them in and having those churn out dollar revenue and Satoshi revenue, when your, when your cost of capital, when your hurdle rate is not Bitcoin, it's not BTC, it's, it's five, six percent, you know, annualized in, in dollar terms, that's doable. And so I think, I think that's something that you You know, at, at the pleb level, and you're also seeing this at an institutional level, you're seeing Marathon, Hut, these, these huge publicly traded miners, they're going up to, one of them is a Federal Reserve Bank, a member bank, Silvergate in, in California, they actually have access to the Fed window, and Marathon has a hundred million dollar collateralized rolling line of credit with them, and so that's kind of exciting, right? Like, obviously, you know, the, the big miners, and, and sometimes they're not the most loved

Maybe, regulatory risks and, and et cetera, we, we've, you know, we could go down that path, but, the exciting thing is, you know, these, these huge miners that are, that are mining hundreds of, of Bitcoin, every quarter, you know, they're, I think, you know, one exa hash, two exa hash of, of hash rate, they don't have to sell, and, and their, their margins are so, so large that, you know, they wanna go buy ten thousand more for a lot of these, for a lot of these, publicly traded companies, it's changed the game for some plebs, and I think just the amount of, of, basically services, that, that are, that will, you know, allow you to do this in a way that's optimal for Bitcoiners, in the sense that you, you understand the counterparty risk, which is there, it's always there. If you, if it's not in your own custody, the Bitcoin, if you don't have it with your own seed phrase and your kind of hard to quantify at times, but with services like Unchained, which says, "Hey, we'll put this in a multisig and we'll put this in, and, and we'll leave it transparently in this address, and as long as you pay it down, it'll stay there." that's pretty optimal. And so I think hopefully we see kind of more transparency, more services, more options get built out where, it's, it's, you know, it's very easy to just kind of tap into this. You're seeing this, obviously there's, there's protocol risk, there's other risks, in these chains like, like Ethereum, and you're using, you know, wrapped Bitcoin, and, and there's protocol risks, on all these alt chains, but it's just a start, and I think you're gonna see a lot of these things that, that are being built out and kind of built fast and, and, and breaking and, and just kind of, you know, trial and error on these, you know, other, the, you know, other parts of the, if you We have a really sturdy foundation in the, in the Bitcoin world, and I think that's, that's one of the most exciting things we can-- we'll see over the next decade.

Right. The existence of these markets, whether they are the likes of Unchained Capital, now disclosure for my listeners, Unchained Capital are a sponsor of my show, as our compass mining, and so this might, might help people to not have to sell their coins. So I guess that is coming into that purpose of, let's say, you're trying to live off your stack, that's one example, or you wanna participate in this kind of more permissionless finance world. Or maybe another example would be Hoddle Hoddle, right? So that's also another one where you can collateralize Bitcoin and borrow stablecoins, as an example, Liquid USDT, USDT Tether on Liquid Blockchain. sidechain. so that's another example. so I guess let's just talk through the continuity part of it. So let's say you start that loan, and let's say now it's been a year or two years, that loan is coming to term, what does it look like? So maybe we could talk through an example just to give people an idea, what does it look like to roll over that loan and sort of sustain this idea? Because let me, I guess, let me just kind of frame it in one way. So let's say there's some big life purchase want, or, or you wanna do Bitcoin mining as an example, or you wanna lever up on Bitcoin. The idea is instead of selling, I don't know, just, just to pick numbers, instead of selling one Bitcoin today to get that, you're selling, you know, point one Bitcoin in four years' time or something like that, right? That's an example of how by using the Fiat system, people are able to lower the amount of Sats that they are selling or foregoing, right?

Yeah, so I, you know, that's a great point. I think, you know, everyone In terms of how they think about this, what is, you know, what's, what's the area where they, where they start to think, you know, hey, maybe I should, start to cover some of this principle, maybe, maybe it's time, you know, depending on, on what you're looking like, maybe it's time to, to over collateralize some more. I think so, just like, I guess, to give an example, right? Say this summer, you have a, you have a large stack of Bitcoin, you have

all

It goes to thirty K, it's down from sixty. you have a disposable income, you, you know, you have a, a salary, just if we're talking the average pleb, and you wanna stack some more Bitcoin, 'cause it just went to thirty K, you're feeling really bullish, everyone's bearish, and so you, you over collateralize ten percent of your stack, say it's, you know, just throwing out numbers, say you put two Bitcoin in as collateral, you, you get, thirty thousand dollars US of USD, and so now, you have, you have that Bitcoin locked in as, as collateral, that two Bitcoin, you acquire another one at thirty thousand, and now as the cycle progresses, Bitcoin starts to appreciate pretty significantly, we're sitting here at around sixty thousand. Well, if say, say we just, we get to a hundred thousand, a hundred fifty thousand in, in- In early twenty twenty-two. Well, now it's time, I think, a lot of people, especially with the euphoria that comes with Bitcoin all-time highs, I mean, when you're in this, when you're, when you kind of are all in financially, maybe career-wise, maybe, you know, just like in, in, in many senses of the, of the word, a lot of Bitcoiners are very, very passionate. it can get kind of overwhelming in the, in the best way when Bitcoin is ripping, you know, all-time highs, everybody's

Every human monkey brain may say, "Lever up more, " you know, but the, what, what really, you know, the prudent thing to do here, is you've been stacking Sats the whole time. Well, when Bitcoin appreciates by a hundred percent, two hundred percent, five hundred percent, whatever you kind of quantify as being, you know, "Hey, maybe I should, I should take some, take some risk off," the best thing to do is essentially, and it sounds kind of counterintuitive, is to, to stack some fiat. So

Stack, all, you know, a hundred, ten percent of your disposable income into Bitcoin, if Bitcoin appreciates by five hundred percent since the time you took some collateral out, well, maybe i-it's a, it's a pretty good time, to, to basically pay down a little bit of that principal, is to reduce your overall leverage. I think, like personally, and I've, I've been pretty transparent about this, my strategy over the next decade is essentially, like my bear market strategy, and I'm, and I'm looking at all this data, my, Bitcoin scenario is essentially I have a hundred percent of my net worth in Bitcoin. And my, my bullish, my bullish Bitcoin scenario is I have a hundred and five percent, a hundred and ten percent, a hundred, like I, I never, I never wanna be essentially like two x levered long because Bitcoin goes down fifty percent and essentially your net worth is, is a, is a zero. and, and not that I'm gonna have all of this in some, in some, you know, liquidation engine that can just wipe it all out at once, but, you know, I comfortable just, just riding, riding with a sack of Bitcoin and not caring about the exchange rate. When it becomes optimal to do so, acquiring a little bit of, of, of leverage, whether that's with Bitcoin collateral, whether that's unsecured in the fiat world, and, and acquiring a little more of that, of that Bitcoin, and as Bitcoin appreciates, you know, anytime Bitcoin drops down forty, fifty percent, I think you could call it the Saylor strategy, right? Michael Saylor isn't gonna-- when Bitcoin goes one hundred fifty thousand, Borrow another two billion to buy. You might start, you might start paying down a little bit of that, of that principal though, or you might start, you know, paying down a little bit of that, of that billion dollars you borrowed. and essentially, if you're thinking of that trade in dollar terms, it's a huge, huge win. He acquired some Bitcoin using fiat debt, the hurdle rate is five or six percent, Bitcoin appreciates by five hundred percent when he starts paying down that principal. and so that's a brilliant carry trade, and I think that's how people Time to go lever up, but Bitcoin's going to draw down another fifty percent at some point. It's just, it's going to happen. And so that may be the point where, you know, from a risk reward standpoint, you, you take out a, you know, a, a, a collateralized loan with a small portion of your stack for, you know, with a twenty-five percent LTV, you know, Bitcoin, Bitcoin has to draw down seventy-five percent before you get margin called and it's already gone down, and, and, you know, you have some more collateral. I

I think this is, yeah, this is good. And I think one point I'd love you to expand a little bit is how people can think about their margin call points or their liquidation points, because that's probably something to think about as well. Like it's prudent to think about, okay, if I'm taking this loan at thirty thousand or whatever amount, how much does it have to go down before I get liquidated based on how much collateral I'm putting in? So as an example, maybe the minimum on the platform might be, two hundred percent collateral or two hundred and fifty percent collateral Collateral, but you might say, "No, I wanna be even more safe. I'm gonna go for three hundred or four hundred percent collateralized." Maybe if you could explain a little bit around how to think about that and how to, yeah, basically how to think about your liquidation point.

Yeah, so, if you're thinking about just over-collateralized Bitcoin lending, because, we're talking about, you know, this being a no-loss business for lenders, right? Bitcoin is a very volatile asset, and, you know, the financialization of

Throughout Bitcoin's history, this is somewhat of a recent phenomenon. the regulatory environment has improved and warmed up to Bitcoin, and, and more importantly, big money is saying, "Hey, this pristine monetary asset, we're seeing all these derivative exchanges, you know, the shitcoin casinos essentially, Arthur Hayes and, you know, creating the BitMEX perpetual swap, and all of these essentially these synthetic, you know, derivative markets on top of Bitcoin, on top of these native a- these native crypto assets, and- And the big, the big money is saying, "Hey, we want a portion of the pot." And so, so now we're seeing these lending markets emerge. And so you're seeing, seeing platforms like, you know, BlockFi, and, and I think you're, you're gonna see every, every commercial bank, you know, they're partnering with Nidec. I would be very, very surprised if in, in two or three years-- and I'm not gonna use them, but, if Bank of America doesn't have a, a collateralized Bitcoin lending Consumer, in, in the coming years, basically across the board, you're gonna say, "Hey, I wanna borrow at, at an eight percent rate," and they'll say, "Okay, you need to be, two to one collateralized, so a fifty percent LTV." And so essentially, with a, with, if you give me two thousand dollars of Bitcoin, I'll extend to you one thousand dollars of fiat liquidity, but if Bitcoin drops down fifty percent, we're gonna have to take that collateral from you, and we're gonna basically margin call you.

Depending on where the Bitcoin price is, you may, you may say, "Hey, I, I don't want that, you know, that chance of getting margin called with a fifty percent drawdown. That happened in March twelfth, twenty twenty, in four hours, or, or whatever it was on that, on that crazy day." And so, hey, maybe I wanna be three to one, so, three to one over collateralized, and be a thirty-three percent LTV. And so Bitcoin has to draw down by, you know, sixty-six percent to get margin

Even if you're doing this very over collateralized, it's still you should, you shouldn't do this with, you know, a, a super majority or all of your stack. You should do this with, with something where if that margin call is close to happening, you can always over collateralize further. that's, that's the really important thing here is you never wanna put yourself in a position to, to lose everything. You never wanna be a forced seller. Like this is, this whole conversation we're having is, the whole thing is never be a forced seller of your Bitcoin because tax You always, you just don't wanna, you don't wanna give up this pristine asset, that's the whole game here. but, you know, if, if you wanna, if you wanna say borrow at, at, you know, a three to one LTV, or thirty-three percent loan to value ratio with that, say, sixty-six percent drawdown, well, you know, that's pretty, that's pretty conservative. So, you know, if Bitcoin has already drawn down, you know, twenty percent, thirty percent, forty percent from the all-time highs, doing something like that could be, in a risk-reward sense, pretty attractive. And so, that's how I kind of think about it for the next decade, as long as a fiat ex-exchange rate exists, I tell people, I say, "Hey, I don't think the dollar,

Long term, the outlook is very good. But as a, as a Bitcoin accumulator, I really hope the dollar doesn't dissolve tomorrow. And it won't. The dollar won't, won't go away tomorrow or next year or even five years from now, and I don't think it will go away ten years from now just because of how long dated a lot of these liabilities are. But I hope that this BTC/USD exchange rate persists for a long, long, long time because, it's, it's pretty advantageous for, for Bitcoin holders and holders of this pristine collateral. As long as this, this funny money Federal Reserve fiat monetary system exists, because all of these interest rates are fake. And so, so this, the financialization of Bitcoin in a sense, and the reason that I find it so fascinating, and I follow a lot of the stuff happening in the Bitcoin derivative markets and the Bitcoin futures markets and all this stuff, is because it's almost this parallel system, this parallel cost of capital that's calling the bluff on the incumbent system and saying, "Hey, these interest rates, they're not real." Like if you- You wanna sell, for instance, Stefan, and this is a little bit of a tangent and a little bit, kind of a side note, but it is all kind of interrelated, I think, is in the Bitcoin futures market, there's similar to gold futures, similar to, you know, any other commodity, you can basically promise to deliver, Bitcoin in, say, March of twenty twenty-two, right? And we can, we can, and I'll lock in some esc-- I'll lock in Bitcoin in escrow, and I, I can sell That price isn't trading at the price it's trading at today. It's trading at, say, I don't know, sixty thousand or sixty-one thousand. And so there's a ten or fifteen percent, annualized premium on that Bitcoin. And so, so in the, in the Bitcoin markets, in the crypto markets more broadly, the cost of capital isn't zero percent. It's not one or two percent. It's not three percent. Depending, and it's very variable, and it's very variable depending on sentiment, depending on leverage, but most of the time this is, this, this, this cost of capital, this risk-free rate, like I can just capture this- Delta neutral, market neutral in these, in these, futures markets is like ten, fifteen, twenty percent. And so here you have billions and billions and billions of dollars in these futures markets, in these derivative markets, in these lending markets, all of these things, whenever you see a stablecoin, you know, with an eight percent yield offered on some of these exchanges, and they're saying, "How are they coming up with these rates?" And they're saying, "That's definitely a Ponzi, how are these exchanges doing it?" Well, it's because the cost of capital in these crypto

millions of dollars of, of, of liquid trading every single day. That, that annualized cost of capital is like fifteen, twenty percent. And so, so that's where it's, it's really interesting and that, that arbitrage exists, is because the people in these markets kind of understand that the fiat rate is, is kind of, is kind of, not real, right? And so that's, that's where this is, this is really exciting and this kind of, this arbitrage exists as these worlds kind of converge and collide, is that the, the fiat world, the Enter this space that is gonna offer Bitcoin collateralized products and all of this over the next one year, five years, ten years, they're still operating on a USD standard. And, and there's people like us that are saying, no It's a Bitcoin standard, and if you're offering me a five percent annualized rate to borrow money, I'm gonna take that all day. And I'm gonna do it in a, you know, a risk responsible way, but, you know, we can use that to our advantage.

Right. Yeah. I think, I think you put it really well there. And so we can take an educated guess or speculate a little bit about the kinds of products that will become available over the next few years. So for example, and this is probably not a big novel idea, but people in the Bitcoin community are This, for example, this idea of having a credit card that you could collateralize with Bitcoin, and you could borrow and use that for your living, your day to day paying your expenses, so that way you're not spending satoshis. And so it, it helps people essentially attack the fiat system, taking loans every time they're spending on their credit card, and just having some Bitcoin as collateral and just sort of relying on that. Or another idea might be the idea of having like a home loan product that you can collateralize again with Bitcoin, So I think these are some of the ideas and directions that we will see, and as you rightly said, some of the big banks, they might start. So as an example, even in Australia, the Commonwealth Bank of Australia, the biggest bank in Australia, recently came out saying you can buy Bitcoin inside the app. It would only be natural for them to sort of, in a few years, who knows, take that next step and say, hey, we, you, we'll let you collateralize that, because now you're gonna be paying us interest. So everyone's getting their own little piece And I, the hodlers, are able to keep hodling, right? So basically these products help us keep hodling. That's an interesting way to summarize it perhaps.

Yeah, exactly. I mean, a-and a lot of these banks, like the legacy incumbents, you know, the, the, the guys that have s-trashed on Bitcoin for the last decade, like, it's not that they-- it's not that they, you know, want to, see their, their, you know, e- eventually see their business get destroyed because Bitcoin kind of obsoletes them,

They, they, in a game theoretic way, they have to enter these markets, because, again, they're, they're lending money, they're lending, and, and their risk free rate is set at zero percent, and inflation's running hot, and they're, they're lending out rates to, to, you know, personal loans or, or corporate lenders or, or corporate borrowers at three percent, five percent, and you see, then they see on the other side, they see people are borrowing against their Bitcoin completely over collateralized. So to highlight again, for lenders, it's a no You know, I guess there is some execution risk, maybe depending some liquidity risk when Bitcoin has these, you know, huge liquidation events like we've seen in the past. But really, you know, if you're doing it right, it's a no loss business for lenders, and so they're saying, "Oh my God, it's a no loss business, "and they're still getting this pretty attractive interest rate, well, it's a no-brainer. And so, that's, that's why they're all coming, right? It's not like, it's not like they And for, for, for doing this with this basically newly found trillion dollar asset class, right? Like there's, there's an immense amount of wealth, from Bitcoin holders, and these Bitcoiners like don't really have an interest in selling, right? If you have, if you have a large stack of Bitcoin over basically today, you have, have gone through a lot to get to this point, and, and now with Bitcoin at sixty thousand and the legacy system looking basically as shaky as ever, you're gonna say, "Yeah, I'll just sell all my Bitcoin," or "I'm..." I'm gonna sell a large part of my Bitcoin. No, that's not, that's not what's gonna happen. You're gonna, you just wanna-- Like, you, you understand the end game here. And so, that's, that's where this is, this is really exciting, is because, and, and to highlight again, to go back to kind of, that speculative attack article, the thing that people don't really understand is that when dollars are, are lent, when dollars, when, when a loan is extended, fiat money is created. So, so you have

system that with every dollar that's lent out, the money supply expands. If I'm a lender, I lend, I'm, if I'm a commercial bank, I fractionally lend out my reserves. I have now, I have an asset plus, you know, plus this interest payment that I'm expecting. You have a liability and you have the dollars in your hand. That just created money. And so this, this speculative attack, whether it's, it's me going out there and, and, you know, getting a zero percent credit card for twelve months and just spending it for, on my grocery bill and stacking sats with the difference, or it's Michael Saylor executing this on a billion dollar scale, we're actually introducing more fiat units into the system. While hoarding the Bitcoin supply to ourselves. And so this actually exacerbates the process of hyperbitcoinization, and it's kind of this, this feedback loop that basically kind of guarantees the demise of fiat, which, which is, you know, this kind of big brain idea, but it's, it's pretty exciting to see it kind of play out across the world. It's, it's, it's pretty fascinating.

Right. Yeah. And so it's also fair to say that this principle or idea existed even just in the fiat world with people borrowing to do property purchases. Purchases or stock purchases or other ways where they're levering up, but I guess the difference here is Bitcoin is actually a viable new monetary standard, whereas property and stocks couldn't become money, they're not marketable or saleable in the way that Bitcoin is. So that's an interesting aspect there. Now, I don't wanna be too much of a negative Nancy, but I think it is fair to point out some of the risks for people, right? I think listeners of my show are intelligent, I think, but just to, just to make it clear for everybody that there are risks So this isn't a free lunch, right? So you are paying interest, that's one thing. You're paying an interest revenue for this, for the loan, obviously. There is a liquidation risk, as we've spoken about, right? So Bitcoin has gone through multiple eighty percent drawdowns, and there's no guarantees that it won't happen again, and it can happen very quickly. So at that time, for example, in the March twenty twenty example, it can happen very quickly, and you might not have that time to get your collateral in. If, so as an example, instead of You have the option to put some more bit-post more collateral to post some more Bitcoin, but guess what? During the price drop, the miners have an incentive to-- well, basically, the block slow down because the price is lower, miners have less of an incentive, so, and then fee rates go up, so now you're actually trying to get your Bitcoin into the collateral at the precise worst possible time. So that's an example there. also, not your keys, not your coins. So that's always something people have to think about too, because if you're using a provider and you don Have a quorum of keys, even if you hold one out of three keys or you hold, you know, zero keys, that is a risk that some Bitcoin people may think, you know what, that's just, that's more risk than I'm willing to take, right? So, and I think it's fair to just for us to, give a balanced presentation. Now, I think obviously there are some great benefits here. Now, a-and, you know, I, I, I, I believe in that product, but I also wanna be clear, here are some of the risks out

I just, it's, you know, obviously, there, there is, custodial risk, there is liquidation risk, BTC, USD exchange risk, I think one of the things with, with the fiat monetary system is the stuff that we saw last year in March of twenty twenty, this kind of hyper-deflationary events, these risk-off across every asset class, equities, Bitcoin, real estate, we saw the Treasury market in March of twenty twenty go e-liquid no bid. This sort of stuff is a result- Of a hyper amount of leverage in the incumbent system, and that is gonna continue at just, you know, various points, unwind in these huge cascades, and they're gonna have to reinflate the system. And so, you know, if you're, if you're subject to this, this exchange rate risk, during those periods, if you're already levered up, you're, you know, already, with all of your stack already levered up to the, you know, to the head because you think Bitcoin's going to the moon, which it will eventually, again, to become a forced seller, which is the last thing you want. So, all of these things, it's, you know, if, if you wanna even consider it, you know, optimally, you don't wanna do it with a large portion of your stack. I, conservatively, like, I, I say like, you know, five percent, maybe, maybe. And so if you don't have a large amount of Bitcoin, like, some of these strategies aren't, aren't really all that worth it. Five percent, yeah. Yeah, yeah Stuff is just, you know, you, you kind of wanna have a nice little, nice little, a nice little stack to execute these things and really have it be viable. yeah. And, and, you know, really optimally, anytime you enter one of these things, it's hopefully, or, I mean, I think optimally, Bitcoin has already drawn down fifty percent, right? That, that kind of, that risk has already, you know, that risk has already kind of been, been taken off the table a little bit. there still is obviously more downside.

Highs when everyone's euphoric and Bitcoin has already gone up by four hundred percent in a year is, is maybe not the best time. And I would just say, you know, maybe be prudent and continue to stack some Sats because, again, there is no liquidation risk with Bitcoin in your cold storage, there is no counterparty risk. So, you know, that's, that's the important thing to continue to reiterate, as we've, as we've talked about multiple times, just continue to hammer that point home.

the, the safety. And one Still need to be able to make interest payments on that. So as an example, if you lost your job, that could also be a problem for you too. So you should also be thinking about that too. So let's say you entered into a three-year loan, you borrowed some Bitcoin, and you're trying to do this strategy, if you lost your job, as an example, like you're working in some other sector or whatever sector, or even in the Bitcoin sector, whatever, if you lost your job, then your ability to repay that loan now is at serious jeopardy, and/or is now Think about. So that's also another reason for people out there to be conservative in how they do this or think about these things, although, you know, you might be able to find ways around it, like, let's say if the number goes up enough, well, okay, maybe you might be able to still make it work, but it's just something to think about also.

Hundred percent, great point. Yeah.

Okay, so I think the-- these are all really good points. I think it's been, a very illuminating discussion. I think one other area I wanted to touch on

Talking about this idea that it's, it's, it's sort of foreboding the eventual crash of fiat, right? That people-- and I mean, it's a global world out there, right? Like probably forty-five percent of my listeners are in the US, but hey, there's a lot of people out there all around the world who might be doing this in their local currency. but I'm curious what happens because as an example, it could be that eventually credit freezes up. So it's like people want a loan, but actually banks sort of can't-- the fiat banks can't offer that credit anymore. So I'm curious what, what you think whether that is a scenario that could happen or a likely one, and how would you deal with it in that scenario? So let's say you've done this Bitcoin loan and you're trying to roll it over, but now credit is freezing up, and so now you're sort of, you're stuck, right?

Yeah, I think, I think it's a really interesting, kind of the convergence between, the central bank fiat monetary system and this, this kind of emergence of the financialization of, of Bitcoin and, and more broadly like crypto markets. And I, I say that and, and a lot of people will cringe, but you're seeing kind of this, this rise of, of peer-to-peer lending, stable coins are exploding, all this stuff. Like, I mean, again, I, I'm not gonna hold, a significant portion of my net worth in stable coins because It's, a commercial bank IOU wrapped onto a blockchain IOU, which can be frozen at any point. But what you're seeing is, with all of that aside, is that you're seeing a lot of these, these markets emerge, you know, at, at large scale. sta-- total stablecoin, market value, I think, is well surpassed a hundred billion. USDC and Tether alone, are, are surpassed a hundred billion, and you're seeing a lot of kind of, other, other sorts Sort of kind of, stablecoin protocols and all this stuff that's, that's not Bitcoin, but you're seeing these, these lending markets, these peer-to-peer markets emerge, whether that's on centralized exchanges or you're seeing, you know, these, again, and, and these protocols like in the, in the altcoin sphere, they're, they're like, there's a lot of risk there, but you're seeing these markets emerge, in the free market, right? So whether it's on FTX, peer-to-peer where you

Your BTC liquidity in an appear-to-peer fashion, in an over-collateralized fashion, lend it out to people who want margin. And so, there's all these things that are arising that you have this kind of natural rate of interest. Also, you have, like we talked about earlier, you have this Bitcoin futures market. And so, so you're seeing in times where Bitcoin is a really, really big bull market, you're seeing, basically the demand to be long Bitcoin is, is really, really high. And so you can just, in a completely market neutral way, you Short futures, long spot Bitcoin. So, so basically what that means is you have your Bitcoin, that's your long spot, and you sell it in the futures contract, you basically lock it in and say, "I'll, you know, I, I'll promise to sell this," and the, and the counterparty does this for you. Again, so there is counterparty risk, but you can capture, say, forty percent yields, fifty percent yields, and then, and this is essentially, I, I think of this as an interest rate. You have, say, the Bitcoin

Spot price, which is traded around the world, is a spot index. The perpetual swap is a derivatives contract where there's long and shorts and there's an equal amount of long and shorts on, on every derivatives, exchange. every buyer needs a seller, but there is a per, a per price. And so if those, if those, you know, longs or shorts on the derivative exchange want to bid up the price of Bitcoin against the spot index, well, there's a funding rate. And so if, say, the price of Bitcoin is sixty thousand today and the perpetual- Swap's price is sixty-one thousand, but what you're gonna see is that longs have to pay shorts an immense amount of funding, basically a notional percent of their position size every like eight hours or so. And so that in itself is a, is a market interest rate if you wanna think of it. In the, in the legacy world, we have basically, we have like a treasury and we have a coupon yield. Well, in, in these, in these Bitcoin markets, we have the BTC/USD exchange rate and the futures curve is almost this, this interest rate. And so I think the Interesting kind of dichotomy is, the central banks, the governments around the world, if they stop printing money, then everything is gonna collapse and, and BTC, everything else will see far, like, huge corrections in their, in their dollar-denominated price. but we know that with, you know, the Bitcoin protocol, proof-of-work mining, the difficulty adjustment, there will be, basically a production cost to Bitcoin, so there, there is, there is value that we know will be maintained. but regardless, they have to print. If they don't print, everything collapses, but we'll still have these native markets, for, for this basically this cost of capital. And so it's almost like a check on these, on these central banks and governments. And the moment they, they start to print again, we'll see the exchange rate for all, for Bitcoin and for, you know, equities and everything else rip again, and all these lending markets will be, again, once again flush with liquidity, and we'll see, just, you know, you'll see this in action in March when everything crashed, you know, Stepped in, well, in the crypto markets actually, the lending rates were, were basically zero or negative in the sense that they were paying you to go long Bitcoin. Everybody across the board is wiped out. And, and you could essentially, you could, you could go long Bitcoin on, say, perpetual swaps or like all of the stablecoin yields. It's like at zero. The cost of capital in these crypto markets is at zero. And so, you know, I don't know necessarily what's gonna happen, but what I do know when, when I'm saying all of this, is that there is a check on the, the centralized kind of commercial bank fractional reserve credit extension that we've seen in the past. And it's these free and open wild, wild west and Let me be clear, it is the Wild West in what's happening, you know, billions of dollars every second of the day being thrown around, being borrowed, being lent out, being over collateralized, It's really fascinating to watch, but there is this, this kind of this parallel system being built out. And so, you know, what will emerge? What will the, you know, will, will there be a, a Bitcoin native DeFi liquidity pool that's, that's, you know, secure protocol in the future? I mean, I hope so, and I'm really excited to see what's built. but I, I do know that it's really exciting, and there is kind of this, this kind of native, cost of capital in Bitcoin that is variable, but that Completely out of the realm of, of central planned, kind of central bank monetary systems.

Yeah, yeah, it's really fascinating to think about, and I can tell you've obviously put a lot of time into researching and thinking about this, and even for me, it occupies a lot of my time as well. I'm thinking about, okay, it's essentially using the fiat system against itself in, in like this kind of crazy judo move where Bitcoin hodlers are essentially- Using the system against itself so that they can keep on stacking, or they can keep on Bitcoin mining, or they can live off their stack without spending their Sats. And so it's just a really crazy interaction of all these different fields in terms of accounting, tax, economics, finance Global macro, you know, maybe throw in a little bit of on-chain analytics and looking at what the exchange derivative rates are, and looking at what the bank, like fiat bank funding rates are. It's just this crazy mishmash of fields, and I think it's very intellectually, very stimulating to sort of think about. So very interesting stuff for me, but I think it's probably about time to wrap up here. We normally keep it about an hour on my show, so, Dylan, where can people find you online and tell people where they

Yeah, so, you could just find me on Twitter, I spend a lot of time there, just kinda interacting with everybody and throwing around a lot of these ideas. like I said in, in the introduction, I'm working on the deep dive with Bitcoin Magazine, so we kind of cover a lot of the, the on-chain stuff, derivative stuff, and again, it's kind of outlined with this, this, this macro thesis, this hyperbitcoinization thesis, that, that it's the best money the world has ever seen, and, and, you know is today, but, just to, you know, just to make it clear, and, and in the deep dive, I say this every-- I say this probably every day, you know, we're not, we're not giving trading signals, that's the first thing. But the second thing is that, you know, you can't lose by just stacking Sats and, and having a low time reference and just, and just riding the wave and just, you know, just stay humble, stack Sats, shout out Matt Odell. a lot of this stuff, it

And, you know, if, if you make it out, then you, you, you basically outperform Bitcoin, which is, which is very hard, but, you know, you can't lose with just, with just hanging back and, and, you know, doing what we all know is, is the best. So, you know, Stefan, I, I really appreciate you having me on. This is kind of a, a really fun, wide-ranging topic on a lot of stuff that, that I don't cover too often, on podcasts. So it was

I really enjoyed chatting with you. Appreciate

it.

If you're enjoying the show, make sure you share the show with your friends and leave a review on iTunes. And the show notes are available at stephanalivera dot com. Thanks for listening, and I will see you in the city dials.